In the four years that have elapsed since the publication of the European Commission's White Paper on ‘Completing the Internal Market’ in June 1985 understanding of the issues involved in removing the various physical, fiscal and technical barriers to having a ‘single market’ in Europe has developed considerably. The public debate has gone through a series of phases, starting with scepticism, strikingly translated into enthusiasm and almost euphoria during 1988, to be replaced with serious concerns about many specific areas as general principles have come to be replaced by detailed proposals by the European Commission. The member states signed the Single European Act in 1986 for a variety of motives and it is often only when explicit proposals are tabled that the conflicting objectives and detailed implications become obvious.

In 1965, the National Institute published ‘The British Economy in 1975’, by W. Beckerman and associates. This article summarises the results of a post-mortem on the book which was carried out at the Institute, together with a general discussion of approaches to medium-term projections

Over the past 15 years, manufactures have been the fastest-growing sector of Britain's import trade. In 1969, the dollar value of total retained imports was 75 per cent higher than the 1955 figure but the dollar value of imports of manufactures was more than 260 per cent greater than in 1955. The latter rise owed little to higher prices; there was a more than threefold increase in volume. Thus manufactures which had in 1955 supplied just under 23 per cent of retained imports accounted for 43 per cent in 1969.

The focus of interest of macroeconomic policy has been moving away from the short term towards the medium term. Partly this is because the present recession, already deeper than any experienced since the war, seems still to have some way to go, and the question is hotly debated when, and how strongly, a recovery may be expected to come. But, with the new government, there has also been a significant shift in the attitude towards management of the economy. The government's objectives for the medium term, enunciated in the Financial Statement and Budget Report 1980-81, are ‘to bring down the rate of inflation and to create conditions for a sustainable growth of output and employment’. This reduction in the rate of inflation is to be brought about by a ‘Medium-Term Financial Strategy’ which is based on the idea that the role of government should be to announce, and subsequently adhere to, a sequence of declining targets for £M3 and the PSBR.

In February and August each year the National Institute publishes forecasts of growth in output for 24 separate industrial sectors which together comprise the index of industrial production. The forecasts are based mainly, though not entirely, upon macro-forecasts prepared by the Institute on the usual basis of assuming no change in government policies. This article contains a description and some tests of the econometric procedure used to derive the industrial forecasts from those yielded by the macro model. It must be emphasised, however, that the econometric procedure used to prepare the industrial forecasts represents only the first stage of a two-part method which yields the forecasts finally published in the Industrial Production chapter of the National Institute Economic Review. Although based upon the econometric forecasts, the final predictions incorporate adjustments made at the second stage of the procedure when up-to-date information on capacity constraints, strikes, tariffs and other factors is taken into account. In addition, adjustments may be necessary in the actual forecasting situation to ensure that the sum of the component forecasts adds up to the aggregate industrial production forecast (see page 61).

This article analyses the role of technical progress in three models of the UK economy. In the standard neoclassical growth model, the growth of the economy is dictated by the growth rate of technical progress plus that of the population. Our two simulation experiments, increasing the level of technical progress by 1 per cent and the growth rate by 0.1 percentage points, suggest that technological progress plays the same role in these large macroeconometric models. In both cases the result is higher output and real wages. However adjustment following the shocks is protracted, giving substantial technological unemployment which in several instances is permanent.

When the Government adopts a fiscal policy framework and target structure, as the current Government did in 1997, there is only limited interest in criticism of the policy framework itself. Inevitably much more attention focuses on whether the Government's targets will be met, rather than on whether those targets are the right targets; this is a simpler focus for debate.

For the past four years estimates of home and foreign orders have been published which, by and large, cover the capital goods sector of the engineering industry. (This is the sector which produces to order.) Home deliveries from this sector make up a large part of industry's investment in plant and machinery; export deliveries have usually been more buoyant than total exports. If these orders figures could be used to predict turning-points in home and export deliveries of engineering products, this would be a helpful additional forecasting tool.

The global financial crisis has been compounded by an exceptionally sharp drop in world trade, and we are now facing the most widespread global recession in over sixty years. World GDP is expected to record an annual decline this year for the first time since 1946. As the economic crisis has developed, policymakers have stepped in across the globe to help stabilise the world economy. In the absence of fiscal and monetary easing initiated since 2008, world output would have been expected to decline by 1.7 per cent this year, compared to our current forecast decline of 0.5 per cent. However, while policy actions in the banking sector were sufficient to stabilise what appeared to be the imminent collapse of the global financial system last October, there is little concrete evidence that policy initiatives have successfully started to ease lending conditions. The key risks to our forecast hinge on the speed with which financing conditions normalise, the speed with which world trade reverts to equilibrium and the path of inventories.

Output in several of the economies of East Asia fell very sharply at the turn of the year, but those countries are now leading the global recovery. This points to a strengthening of domestic demand in these largely export-oriented economies, and our forecast shows some rebalancing of global demand. This will allow the large current account surpluses in China and Japan to narrow over the next few years, and help sustain the recovery in the rest of the world. The Japanese current account is expected to approach balance by 2013, from a surplus of nearly 5 per cent of GDP in 2007, while the Chinese currrent account surplus is expected to narrow to about 8 per cent of GDP from a peak of over 12 per cent in 2007.

Price inflation in the UK economy has remained below the expectations of most commentators since sterling left the exchange-rate mechanism in September 1992. Latest estimates of inflation indicate that retail prices are now growing at an annual underlying rate of 2 per cent; the lowest growth rate for 27 years. This impressive performance is being sustained by very low growth in labour and capital costs, unit labour costs are estimated to have fallen by 1/2 per cent in the last year, as fast productivity growth has been combined with low growth in earnings.

This note, by Mrs. K. Jones, is one chapter of a study on ‘Some Economic Aspects of Immigration’, which is being undertaken at the Institute. Research is still in progress on other aspects, such as employment, earnings, expenditure, savings and remittances, housing and capital requirements. It is hoped to publish the results as an Occasional Paper by the end of 1968.

The forecast ‘on unchanged policies’ is not a forecast of what is likely to happen, since unemployment in the winter of 1968 would probably reach a recorded figure of 650-700 thousand, with still a strong underlying upward trend. The Government, even if it has accepted the idea of running the economy with a higher level of unemployment—say 2 1/4-2½ per cent— will need to intervene, and probably need to intervene fairly soon (page 30) if the figure is to level off within these margins.

Both the models whose performance is reviewed here(1) made use of the concept of a ‘depreciated stock’, and consisted of a relationship between income and other variables and depreciated car stock. To quote the original article : “ Most forecasts of demand normally attempt first to establish some historical relationship between movements in the consumption of the commodity in question, and changes in incomes and relative prices; these relationships are then used for forecasting. With cars (as with other durables) there is a difficulty about the concept of consumption. A car is not ‘consumed ‘immediately upon purchase; it lasts a considerable number of years. Further, for cars (unlike most other durables) there is a big secondhand market.”

For more than four decades, the New Zealand Institute of Economic Research (NZIER) has conducted a two-question, quarterly survey of architect forecasts of public and private sector construction expenditure. This qualitative survey is published one week after the end of each quarter and nine weeks ahead of the official quantitative data thereby giving architect opinion nowcasting status. This paper covers selected aspects of this unexplored series with particular reference to residential housing construction and the value-added information from architects as nowcasters. Specifically, we consider several qualitative-to-quantitative conversion methods, in-sample and out-of-sample performance, cyclical features and respondent dynamics. Although our work relates to architects — a sub-sector of the service industry — our results have a wider application to business survey questions using ordered qualitative responses.